Friday, December 25, 2015

America and other countries have allowed numbers
that mean "nothing" to seep into how the gross domestic product (GDP) is
calculated in an effort to create the illusion of better growth. Decades ago America far out produced the rest of the world and manufactured
goods that it exported across the seas, but today much of our economy is
dominated by the service and retail sectors, this often translates into if you wash my windows, then
I will mow your yard. Gross Domestic Product is defined as the total market value of all
final goods and services produced in a country in a given year, equal to
total consumer, investment and government spending, plus the value of
exports, minus the value of imports. Within that definition it appears
those in power have discovered some wiggle room and even before that a
debate exist as to what it really tells us.

Fraud Is Common In Our "Photoshop world"

We live in a "Photoshop world" and this means we should scrutinize everything, if not we risk we will be very surprised. The Bureau
of Economic Analysis (BEA) has made a significant change on how they
calculate the GDP and measuring our economic growth that went by unnoticed by many people when they changed
how they classified and recorded expenditures for R&D and for
entertainment, literary, and artistic originals. An announcement of this change was made by the BEA during February of 2013,
this resulted in an increase in the GDP. This kind of "bump" means that
a gain of 2% today is in reality less than a gain of 2% years ago. This
means we are comparing apples to oranges. When delving deeper into all of
this it is easy to see the GDP is a master illusion designed to filter down to both society and the Main Street economy.

The first
comprehensive set of measures of national income was developed by
economist Simon Kuznets who in 1934 told the U.S. Congress the formula was
problematic, he said."The valuable capacity of the human mind to simplify a complex
situation in a compact characterization becomes dangerous when not
controlled in terms of definitely stated criteria. With quantitative
measurements especially, the definiteness of the result suggests, often
misleadingly, a precision and simplicity in the outlines of the object
measured. Measurements of national income are subject to this type of
illusion and resulting abuse, especially since they deal with matters
that are the center of conflict of opposing social groups where the
effectiveness of an argument is contingent upon
oversimplification."

In 1962 Kuznets again emphasized that we must keep in mind the
difference between quantity and the quality of growth. He made it clear a
distinction exist between cost and returns, and between the long and the
short run. Kuznets went further to specify we needed goals concerning
both growth "of what, and for what." Other economist have agreed that
GDP is an empty abstraction with a very weak link to the real economy.The
framework fails to reflect the difference between real wealth expansion
or capital consumption. Kuznets used the example of the government
building a pyramid that added nothing to the well-being of individuals,
it would be viewed as economic growth, but in reality divert funding
away from real wealth generating activities harms the generation of real
wealth. Unfortunately, this is happening far too often.

What is not stated can be far more important than what is. The
numbers we are often spoon fed and await with such glee has little to do with
real growth but most likely mirrors or is merely a reflection of
monetary pumping. The GDP number fails to highlight a slew of important
factors that feed directly into our standard of living and the health of
our economy, such as;

* How wealth is distributed and inequality * Taxation and how it effects both the economy and society* Non- market transactions like volunteer and off book work
* Underground economy, illegal trade and many cash transactions.
* Asset value, meaning GDP ignores changes in what things are worth
* The non-monetary part of the economy, bartering of goods and services
* Distinguishing between production that is subsidized and that which is not
* Quality improvements and new products
* What is being produced, bombs or butter and a better educated populace
* The sustainability of growth or misallocation of either capital or resources
* Cross border parity and changes in currency value
* External factors such as negative environmental effects or the health of the people

One way a country can kick their gross domestic product forward is to
build a false economy based on infrastructure or war. When a country
gorges at the trough of deficit spending it can easily manipulate a big
temporary boost in its GDP. Some countries have even gone as far as to add things like
prostitution and other illegal activities in a way to boost GDP and by doing so they can lower their ratio of GDP to government debt. In 2013 in advice to
their government the UK's Natural Capital Committee highlighted some of
the failures of GDP when they pointed out its focus on flows can allow
an economy to run down its assets while recording high levels of GDP
growth until a point is reached where this begins to impact future
growth. They went on to make it clear the recorded GDP growth rate is
prone to overstate the sustainable growth rate. This number as with most
numbers once put out there is subject to full blown manipulation and
spin.

Bottom-line in the words of its creator, "The GDP
framework is more or less an empty abstraction devoid of any link to the
real world." All
economic growth is not created equal and quality is a critical factor that must not be ignored when it comes to the issue of growth. History shows that when you spend money and
afterwards have little to show for it you have simply wasted your money.
Sadly, much of the money America claims to invest in itself each year
falls directly into this category. True economic growth is well directed
and focused in a way that is both sustainable and yields long lasting
benefits. The quality of growth directly effects its value to both the economy and
eventually society, but sadly government shows little interest in a
more honest reflection of economic growth. Proof of this is that absent in almost all
government numbers is a reflection of how bankruptcies effect the economy and the fact many
debts don't get paid off but are simply written off.

Friday, December 18, 2015

Earlier this year I wrote a piece that indicated a great deal of wealth would be flowing into America seeking protection from the ravages fostered upon it. This is driven by policies that have been even worse than those America's leaders have chosen to pursue. The strong dollar acts like a magnet pulling wealth towards America and it may soon get much stronger. Throughout history, strong currencies have attracted wealth and this means money and wealth from
all over the world are headed towards our shores. The money coming into America is flowing into both bonds and stocks.
This creates a self-feeding loop that supports lower interest rates and drives the stock market ever
higher. Those of you who have read other articles I have written know I think the market is overvalued and the bond market is a bubble ready to pop, but as long as we remain the best and safest place to hide money do not discount the dollar.

Drawing Money Like A Magnet

While America has been described recently as the cleanest dirty shirt in
the closet, or the best house in a bad neighborhood, both place it as
the least worse option. The reality is other options fail to pass the
smell test. This means what is coming to America is wealth and money
seeking a "safer" place to take refuge from the coming storm. Today
America has become a money magnet, Lady Liberty the symbol of America
that stands in the harbor of New York while a bit tarnished is still
giving people hope even if Washington is not overwhelming us with the
same glowing feeling.

Do not underestimate the power of cross-border money traveling
into the country as a driving economic force. Another thing you should
not underestimate is the advantage our currency has because of its role
as the world reserve currency. This makes it the "default currency" and
by the size of its market, float, and liquidity the currency by which
all others are weighed, measured, and often pegged. The chickens are
coming home to roost for countries that face growing debt and policies
that make them uncompetitive. Some of these countries are increasing
looking at ways to confiscate the wealth of their citizens, it is only
logical that as people begin to realize the dead end path of their homelands they take action to move their money to a safer place.

A Very Important Chart In Understanding The Dollar

The chart to the left is very important. Today four major currencies dominate the world stage, they are the
pound, the euro, the yen, and of course the dollar. The remaining currencies remain small bit players in the overall scheme of things. John Maynard Keynes said, By a continuing process of inflation, government can confiscate,
secretly and unobserved, an important part of the wealth of their citizens.
As
the central banks print like crazy to control interest rates on bonds
they devalue the currency. While there are not many Bond
Vigilantes there is a slew of Currency Vigilantes and they are ready
to make their presence known.

The yen and the euro are in trouble, with the pound being very vulnerable
to contagion. Weakness in the value of the Yen, Pound,
and Euro must not go unnoticed as they are a precursor to the wealth
fleeing the countries that use them in everyday life. What is occurring
in the currency markets and the huge shift in wealth are not uncommon. History has shown countries can steal wealth by way of various Trojan horse methods such
as monetizing debt through printing massive amounts of new currency or
new taxes. If you look close you will see the currency markets are beginning to
reflect diminished confidence in the system central banks have created and as the currency games continue to ratchet ever higher it is becoming
more apparent that much of the world financial structure is built on shifting sand.

The schemes bankers have used for
years to hide and transfer debt are coming under attack, if they crumble
under the assault it will culminate in a reset of the economic system
across the globe. If people all over the world try to get out of their home
currencies a surge in the value of the dollar is logical. In the end,
this will not be the salvation of America or its economy but it sure
does help create a bit of a lift that we would be wise to take advantage
of. As things turn ugly across the world it is only expected that as in
Neil Diamond's patriotic song the wealth of the world like its people
just wants to be free. Like the people Diamond sings about it seems wealth
also appears to have legs and as the people, everywhere around the world
the money is coming to America! Yes, it is coming to America, today,
today!

Footnote #2; Last night the yen took a blip up based on a surprise move by the BOJ that was interpreted as not easing enough, I'm short the yen and see such blips as expected. Note the yen often jumps on bad news from China, I feel this has to do with money leaving Chine via Japan, it then moves its way into the dollar.

Wednesday, December 16, 2015

Writing off bad debt will be a painful process and I don't mean for the debtor but for the creditor the person, business, or institution that holds the paper. It generally constitutes an unplanned and involuntary financial adjustment. While it appears much of the financial community is relatively unfazed by the mountains of debt growing throughout the world we as individuals should be concerned as to the many ways it might spillover and affect our lives. Clever sounding terms like "transitory" are often used to mask growing problems and to inject a bit of sophistication to this problem while trying to brush reality aside. Sometimes a person presenting the case growing debt is under control will even go so far as to explain that some of it is good debt or boast how we are enjoying the positive effects of the loose lending standards.

Debt Hangs Above Us Ready To Explode!

We should remember debt takes many forms and shapes, it is not contained in auto and student loans. With low-interest rates many companies have borrowed a great deal of money to buy back stock, this has been one of the forces driving the market ever higher. A comment from a reader several months ago highlights this and why it might be a big problem when he wrote; It is fairly obvious that not all IOU's are deemed as trustworthy, and as trust drains from this over-indebted system, shakiest issuers' debt will lose value fastest. Junk debt is thus a Hindenburg in search of a spark all its own. Wait until corporations discover how difficult it may be to roll over all this share-buyback debt of the last few years.

Artificially low-interest rates tend to skew all markets especially the credit and debt markets. This creates a debt explosion that extends into everything including consumer spending and the statistics surrounding their effects on the economy. A great deal of what is being seen as deflation flows from a loop being created from lower interest payments on things like autos, sadly this is a one-off and only goes to mask deeper trends developing under the surface. The fact is debt that cannot be repaid tends to be hidden away and corrupts the true worth of those owed what often amounts to non-collectible sums. Even now we are hearing calls by many people to write off and forgive student debt without any real understanding of the implications such a policy would entail.

Again, I caution those who think this writing off of debt will be an orderly and even process. By that, I'm saying not all debt is created equal. One major difference is whether it is backed by assets or collateral. Many other factors affect the strength or impact of defaults. One example of this is when it becomes payable, some debt is stretched over decades while other obligations are short-term and paid with a balloon payment or all at one time. Also, debt is computed at different interest rates and this can affect its long-term impact. Another often forgotten issue is whom the debt is owed to and the impact default will have on their ability to honor their current and long-term obligations. I have seen several businesses forced into bankruptcy when a large customer defaults and cannot pay its bills.

It is important to consider how this will all play out or shakedown, this is yet to be determined but the ramifications remain powerful. Often unpaid debt shifts the pain or obligation to another party and acts as a wealth transfer, usually, this is not a voluntary act unless the note is being forgiven by the holder. I see bad debts on the rise and the effect to both the economy and the lives of many will be massive and undeniable in coming years. It will show its ugly side by pensions being cut, inflation edging higher, or simply lowering our overall standard of living. The fact is some way or form the piper must be paid and we will be reminded that there is no such thing as a free lunch.

The Reality Is We Have Not Deleveraged!

The world of bankruptcy and unpaid debt has become a complicated place where protection for one party can leave another totally exposed. We have seen things like "clawbacks" or the government making an exception and changing the rules as in the case of shafting the bondholders of General Motors during the bailout. Yes, writing off debt can be a slippery slope. The debt that is written off takes something with it when it leaves this world and that is the wealth of someone else! In today's low-interest rate easy money environment it is much easier to hide under-performing assets and the inability to repay debt. Low-Interest rates tend to foster an extend and pretend attitude that becomes apparent and crystal clear only after rates climb and put stress on the system.

Several other bad things also happen such as increased speculation that propels the creation of leverage or carry trades that multiple risks. It also tends to move demand forward and cause an increase in the improper allocation of capital, both of these activities have a way of causing problems that linger for years. Across the globe, since 2008 the central banks and governments of the world have played a giant game of hide the debt, much of it disguised by transferring obligations from the banks and people onto the backs of their populations and into a growing pile of public debt. The problem is massive debt still hangs above our heads as a Hindenburg in search of a spark.

Sunday, December 13, 2015

How high is high? When asking this question it would also be wise to ponder the following, How low is low? Markets are capable of making extreme moves and we should remember trees don't grow to the sky and markets don't go up forever. As someone who has traded commodities for decades I would strongly recommend anyone considering jumping into the super high risk snake pit of commodity trading to steer clear of it. While I have had victories I have also gone through a slew of painful losses and been bludgeoned by markets and price swings that have defied all logic. Adding to a traders pain and woes is that when you are caught on the bad side of an ugly trade the speed that a vicious market can dish out its brutal assault is usually extremely underestimated. After over 30 years
of trading commodities I will flat out state without any reservations
that lies and manipulation run rampant. If you think anyone is looking
out for the small independent trader in the stock market or commodity market you are wrong.

Who Predicted Oil Would Do This?

A recent article caught my interest, it said; It is always darkest before the dawn. In other words, the
energy market could see crude-oil prices tumble further in the coming
days after closing near seven-year lows. January West
Texas Intermediate crude
tumbled $2.32, or 5.8%, to settle at $37.65 a barrel. At least one chart pattern followed by technical analysts is pointing to more pain for the WTI contract as oil tilted below $37 a barrel in early Tuesday's trade. Talk has surfaced of 20 dollar oil at the same time some analyst said it is time for investors to jump in and "pick a bottom" pointing out energy stocks are now a bargain. History has shown that markets defy logic and our opinions are often wrong. Five years ago few market gurus predicted oil would be trade at such low prices today. It is difficult to say where the price of oil will be next month.

After asking the question of how high is high I must also ask, how low is low? Markets can make extreme or wild moves that charts often are unable to predict. This means it is both dangerous and difficult to pick a market top or bottom. Various technical trading systems while indicating an overbought or oversold market fail when asked to answer these two questions that would make us infallible and legendary investors. Today markets have added a couple new dimensions that will play an interesting role in just how violent and savage price swings are going forward. One of those is that computers now do a great deal of the trading and they are programmed to prey on the weaknesses of human trader using computing programs that
exploit where stops are placed, this improves their ability to wash the
weak out of their positions. Another factor is many people have grown far to complacent.

The "buy the dip" mentality and the idea that the central banks coupled with the too big to fail financial institutions will keep these distorted markets elevated has become entrenched in the minds of many investors. This has lessened the importance of economic fundamentals and the question of how sustainable this market is. It has also put on the back-burner the question and issue of, how high is high. I
have seen and heard far too many comments by those bullish on higher
equity prices and ever higher markets basing their strategy on a policy
of "don't fight the Fed" and "buy the dips." While this has worked
since 2009 it is no guarantee that it will continue to produce positive results
in the future. The "buy the dip mantra" will prove very costly when a
real drop in the market does occur. A saying often used cautions traders they should never try to catch a falling knife.

One
problem we face in the current stock market is a lack of traders holding short positions. Several of the stocks that were recently on strong uptrends appear at heart to be fundamentally unstable and may have been driven higher by bears capitulating and buying back their positions rather than market fundamentals. We have witnessed massive moves
in several speculative stocks like Amazon, Tesla, and Netflix that are
hard to defend by any other reasoning than shorts being squeezed out of
the market. It is logical to think the higher a market goes the more vulnerable it becomes to a major
violent decline or sudden savage downward price moves. A lack of short positions will
bode poorly for the market if it falls rapidly because in such a
situation as shorts take profit and buy back their positions they act as
a floor under the market giving it support. The floor under this market is questionable and with contagion a growing concern it is understandable that junk bonds have begun to take a beating.

The point of this post is to remind all of us the world of investing is a dangerous place and that much of how people react to events depends on how things are set up or how the cards are stacked when things happen, develop, and unfold. We often see that market reaction has more to do with timing and
perception rather than being driven by reality. The economy tends to develop loops that feed back
upon themselves, to this market driver we must add cross border money flows, central bank intervention, currency manipulation, and derivatives. This is only part of the list of pitfalls we face when we develop expectations that drive prices . To top things off we should recognize that at any time an unexpected black swan crisis is always lurking in the wings. This reinforces the idea that we should remain humble in trying to answer the questions of, how high is high, and how low is low. I have learned some valuable lessons over the years, one markets don't go in just one direction, values constantly shift, and after you lose your money it is to late.

Sunday, December 6, 2015

A great deal of how we feel about the economy is usually based on what we hear and see. For much of America it simply comes down to has your child just lost or found a job and then issues such as what is the pay and their prospects going forward. Compounding the employment problem is trends in the type of jobs being created have not been favorable, many of them pay little and are only part-time positions. The issue of healthcare is also front and center, meaning how much will you have to pay and how will you and those in your family be affected as policy prices soar far faster than wages or inflation. To complicate matters our feeling can be temporarily skewed by the purchase of a new car or home that we may or may not be able to afford.

An Inconvenient Truth

The Fed's inability to get the economy off the bottom has been twisted into a "they are doing their best" story in the wake of difficult problems with a "we are better off than we were" spin. Many people have ignored how poisonous low-interest rates have hurt savers and how easy money has spurred poor allocation of capital. Adding to this confusion is that we should embrace a short-term economic prop that results from the Republican's almost jubilant capitulation on the recent budget deal. The general consensus is that the Republicans were in the unenviable position of being politically dammed for any pullback in the economy and would pay a huge price in the upcoming presidential election if they held fast and hard to cut spending. Sadly, while propping up spending this will only add to the exploding national debt.

Decades of overspending, undersaving, offshoring our jobs and a slew of bad habits coupled with bad policies have brought us to where we are today. It is easy to make promises, and we have made many, but the tough part is keeping them. It is hard to ignore that other than a very short-term stimulus or a temporary prop artificially low-interest rates have some rather bad and damaging side effects, if that were not true they would be the norm. In November of 2014, the national debt was poised to pass the 18 trillion mark. As of now, the National Debt Clock shows 777 billion dollars has been added to the total and the amount owed continues to grow. Ironically a big part of the discussion in both Democrat and the Republican presidential debates centers around growing inequality and jobs supporting the very important middle-class lifestyle that propels this county forward. As candidates elbowed each other aside to take credit for our few victories they made even greater efforts to distance themselves from the many failures.

Adding to the confusion is that some of the numbers put out there for us to absorb are somewhat questionable and based on facts or assumptions that carry rather negative implications. A MarketWatch reader who I will identify as JB commented recently; "I counsel a lot of people who are out of their careers and have a family and can not find work. Many are taking out their pensions to live off of because they can not find work. That is going to be the next big crisis is all the people laid off or unemployed taking out their pensions." It appears to me this is a big reason the labor participation rate should be front and center as well as the quality of the jobs being created. It is clear this does not paint a picture of a bountiful future.

Consider this a vivid reminder that success has many fathers and failure is an orphan, but at the end of the day we are left with reality, and as of late it is not a beautiful thing. To those who think all is well I would like to remind them of the old saying, "you can't tell a book by its cover". This means those with an agenda will go to extremes to spin news such as the recent job numbers, but what we are told could be wrong. When we delve a little deeper into the story of our economy sadly, we find it is not a tale of redemption and growth but a horror story based on deceit. The average American is not reading these words because they really don't care or prefer not to know about the problems we face. Timing is another issue, and it seems never a good time to bring up the bad news. This is why the masses often react with surprise and shock when reality raises its ugly head.

Saturday, December 5, 2015

Never before do I remember seeing so many predictions of interest rates remaining low forever and a day. Currently, it appears the whole world is trapped in an easy money low-interest rate environment with no way out. This is a sign that in the future a massive problem is developing and it holds huge economic ramifications and a great deal of risk.Many of us think the bond market is a bubble and when it pops it will leave a massive path of destruction in its wake, yet it is clear the general public is totally unaware of the ramifications it will have, these even extend down to reduced payouts on pensions. A lot of money has rushed into government bonds in a flight to safety, and this has sent yields lower and lower. This may be part of a conundrum created by the reality of too much freshly printed money floating around and people needing someplace to stash it. In the world today investors look for large markets to park their money because it implies a degree of liquidity that insures a quick exit if necessary.

Many people have been caught off guard by the collapse of oil prices and the havoc they are causing in many markets. Even more of a concern should be a focused on what happens if a popping of the bond market bubble occurs. The idea of money quickly leaving the bond market should be a big concern to all governments. Bonds are not just issued by America but by countries all around the world.While some forecasters predict America is now set to grow at the fastest pace in a decade debt investors are signaling their skepticism as commodities plunge and slowdowns in Europe and Asia threaten the U.S. recovery. Recently the bond market's outlook for inflation over the next three decades fell below 1.9 percent annually. Investors’ expectations for consumer-price increases have diminished as the Federal Reserve debated how soon to raise its benchmark interest rate which has been held close to zero in an effort to support demand in the economy. It is hard to know if this is an indicator the marketplace feels comfortable that inflation is going to remain tepid or if concern for safety is driving this market, but I contend it is the later coupled with an influx of foreign capital and a strong dollar.

Many of us have a problem lending hard earned money out for a long period of time and we should be wary. Rates are based on predictions of future government deficits and events around the world that may or may not unfold as expected. It is not reassuring to know these forecasts are often formed and made on assumptions based on rosy scenarios or politically skewed to benefit those in power. Knowing of the effect that interest rates have on the value of bonds in the secondary markets, one might deduce that the 30-year bull run on bonds will have to come to an end the moment rates clearly signal they are about to rise. To give you a sense of what this may mean to U.S. Treasury Bond investors a 10-year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. This means if you’d held $100,000 in these bonds prior to the rise in rates, you would only be able to sell those bonds for $58,000 in the secondary market after the 3% rise. Please note the $58,000 you get back would be before factoring in the loss of purchasing value lost from inflation.

A theory I have put forth in the past is that in light of rapidly growing global debt it might soon become apparent that storing your wealth in any kind of "paper promise" is a bad idea. The term "liquidity trap" that has been used by Allen Greenspan and others can be difficult to understand. The result of such a trap can be that all the additional money poured into the system, even when coupled with lower rates, can no longer drive the economy forward. This would most likely happen when people realize the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and other than those who print the money that nobody wants the only lenders will loan money for very short periods at super high rates. When this happens we are at the end game, the collapse of the economic efficiency of credit has powerful implications because credit is the lubricant that greases the wheels of commerce.

We should consider the possibility that inflation has been kept in check primarily because we as a society have invested a large percentage of our wealth into intangible products or goods such as stocks, bonds, and even currencies. If faith drops in intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation would soar and this would drive interest rates upward.Like many of those who study the economy I worry about the massive number of promised being made and the debt being accumulated by governments, this all ties into the pace at which central banks have expanded the money supply. The timetable on which economic events unfold is often quite uneven and this supports the possibility of such an inflation scenario. The current subsidizing of the auto, housing, and financial industry with an ad hoc disregard for basic economics produces a very flawed kind of growth. For years the ECB has manipulated bond rates lower for countries undeserving of such, as a result, Italy, and others have kept their debt service cost in check, but the fact is artificial rates from central banks mask and perpetuate a debt problem that will come back to haunt them.

The idea that markets are always efficient is a myth manufactured by so-called experts such as Paul Krugman in the ivory towers of academia. Disconnected from the real world those responsible for guiding our banking institutions often fail to see potential second and third order effects of debt monetization. In many ways, they pose one of the greatest threats to the stability of our economic system. A policy of blindly trusting anyone who claims to be an expert has disaster written all over it. If the bond market is indeed a bubble the implications of its collapse will be massive and such an event will not only affect bondholders but will test the economic foundations of both the country and the world. Not only will bondholders be strippedof wealth but soaring interest rates will magnify the nations debt service and rapidly impact our deficit in a negative way. It should never be forgotten that debts can go unpaid and promises are often left unfilled, the general impression that many people hold that it will be different this time will surely be tested.

Footnote; A bond bubble is a subject I wrote about a year ago and nothing has really changed since that time except debt has grown as growth remains tepid. If history has taught us anything it might be nothing stays the same forever. Below is a prior post concerning how in 1980 the Fed turned bonds on their ear by raising rates to 20% if you have the time it takes you down an interesting look at how we got to where we are today. As usual please feel free to explore the blog archives and as always you comments are encouraged.http://brucewilds.blogspot.com/2015/04/interest-rates-inflation-and-debt-matter.html

Tuesday, December 1, 2015

To most of the world China's economy remains veiled behind a shroud and is far from transparent. Not only because China is far away from our shores, but because their economy is very controlled by a government that acts as its puppet master we often have a difficult time getting real information on what is happening. An all growth is good mentality that always included "building more and expanding more" has been China's mantra for years. The combination of these factors has lead to the massive credit trap that China now finds itself in.The lack of clean and precise numbers remains a problem because of political tinkering when it comes to economic data, this situation is magnified because the same government also extends its control over the media and even the internet. It often seems the only way the world would know the wheels had fallen off the economy would be if millions of Chinese hit the streets in protest and that is highly unlikely because China has heavily discouraged such actions for decades.

Money Supply Grew From
$10 To $24 Trillion Since 2008

Over the years corruption has flourished in China and growth of credit has gone unchecked. It is the nature of political systems to mask their flaws and is the case of China years of rapid growth have made this easy. It is important to remember that much of the growth in China after 2008 came from a massive 6.6
trillion dollar stimulus program that expanded credit and poured massive
amounts of money into the system. This encouraged expansion and
construction with little regard as to real demand or need.When critics and those who see the economy of China as containing major defects have made efforts to voice their concerns and point out weaknesses in the system they often have a hard time being heard over the noise of those touting the message of China being a case of potential unleashed.

Even today while many people concede that growth has slowed they still refuse to recognize just how much of past growth has been constructed on a foundation of sand. This is written not to diminish the accomplishments of China or to question their progress, but to point out much of what we have witnessed is the result of one time factors that have largely played out. Several factors have drastically changed politically, socially and from a military perspective since the days when America fueled China's growth. Recently what many Americans viewed as a beneficial relationship has morphed into something akin to fear or resentment. The new military swagger from Beijing coupled with a massive loss of American manufacturing jobs and the theft of intellectual knowledge has left many Americans unenthusiastic over the massive trade deficit with China. I contend China is in far dire straights than most people imagine and the reason it has gone unnoticed is because of the control their government has over the economy which makes it impossible to get accurate or specifically detailed numbers and information.

We must remember Beijing has been hit
by the perfect financial storm as forces from a closed capital account,
independent monetary policy, and a tightly managed exchange rate all
have decided to plummet the economy at the same time. The lack of clean numbers combined with an intentional transparency issue has created a "guessathon" where we are forced to scan the latest pricing on what cargo ships are charging and how busy ports across the world appear to be in an effort to determine what is really happening. A big problem is that an "economy" by its nature can easily trick, hide, or mislead us as to what is occurring off stage or festering in the wings. Reality is often obscured without effort, but when a government is in full propaganda mode in an effort to reassure its people that all is well it can become impossible to see through the fog. China has become a huge player in the game of world finance and merits far more attention than a country like Greece, but this means going to a lot of work to get the truth.

China is in a situation similar to what
America faced in 1929 following a period of rapid growth and credit
expansion. For
years credit expanded rapidly in China, and now much of the country
is mired in debt. As Beijing pursued
a strong yuan policy pegged to the U.S. dollar. Since 2005 the yuan has
appreciated about 30%, this profited those who put money in China, but now that the economy of China has become very shaky a lot of investors are questioning the risk of holding yuan assets. Now the country is experiencing massive capital outflows as several events and the the pain of
attempting to hold its currency peg to the U.S.
dollar finally became unbearable. The PBOC is under tremendous pressure as the responsibility
of holding this mess together rest solidly on their shoulders. A massive
scheme for the state to buy stock shares to halt a falling market while
dealing with near bankrupt municipal authorities is only part of the
woes they face.

Total Debt Is Soaring

Four big state-owned commercial banks and other mainly state-controlled
banks account for nearly all official lending in China and their customers are largely state-owned firms. This has left little room for
private banks and this means informal lending in China has grown
rapidly over the past five years and even local governments borrow from the
shadow banks. No one really
knows how big the shadow banking sector has become, but shadow loans are estimated to make up 20% of all
loans. This is only one of the problems that has developed and skewed China's development as the government controlled the economy from behind the curtain. For years the people of China have
had the habit of saving much of what they earn but the low interest
rates paid at banks has not rewarded savers, this is reflected by growth in the shadow banks and the fact much of their money has drifted into a bizarre housing market where prices are sky high.

It is understood that China’s current-account surpluses have fueled its
huge money-supply growth within a largely pegged currency over the years. As
foreign exchange piled up, the People’s Bank of China continued to print more
yuan. According to some estimates, China’s banking system has grown from
$10 trillion to $24 trillion since 2008, but now the reverse may happen, if the yuan weakens, the
central bank will effectively have to buy its own currency using foreign
reserves to maintain its peg. This could mean the external trade
position would now cause the central bank to shrink domestic money supply. Beijing will need to get used to the market forced
deleveraging and slower growth. It is clear the economic efficiency of credit
has started to collapse in China and the unwinding of its giant credit spree looks to be very painful. All this plays into the view we all going to witness an overall deterioration that makes it logical for investors to get out of both the yuan and China. Expect to see a continuation of wealth leaving China and fleeing towards safety.

Footnote; Please feel free to explore the blog archives and as always
you comments are encouraged. For more on China see any of the post
below,
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-debt.html
http://brucewilds.blogspot.com/2013/04/china-and-corruption.html
http://brucewilds.blogspot.com/2013/02/china-bubble-yes-it-is.html
http://brucewilds.blogspot.com/2012/09/china-made-by-america.html

Tuesday, November 24, 2015

If you want a vision of real "gloom and doom" take a moment and ponder the possibility of a devastating cyber-attack on America's power grid. Being a believer in several of the ideas and theories presented by writers like Nicolas Taleb, author of the best sellers "The Black Swan" and later a book titled "Antifragile" it is not unusual that I might find Ted Koppel's new book interesting. The book titled "Lights Out", reveals that a cyber-attack on America's power grid is not only possible but likely and that we as both a country and as a culture are shockingly unprepared for such an occurrence. In fact, our whole society has become based on what we consider an unending flow of current that allows us to live lives of comfort. There is no question that the moment the lights go out everything would change and both our country and economy would immediately be forced into survival mode.

emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.
Such recommendations are made in his recently published book
- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf

emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.
Such recommendations are made in his recently published book
- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf

Ted Koppel the veteran newsman and the former anchor of ABC’s Nightline has written a book that delves into how we have grown accustomed to cyber-attacks but makes the point that we have never had a cyber-attack that amounts to a weapon of mass destruction. In the past attacks have resulted in grand larceny or what amounts to the huge vacuuming of intelligence information. In a television interview, Koppel said, "My point is that if someone succeeds in taking down one of our power grids, and the Russians and the Chinese can do it and maybe the Iranians and the North Koreans, it would be devastating."In the past when the lights go out it is usually because of Mother Nature and we have always managed to get through it. But what if the power went out in a number of states affecting millions of people for weeks, even months? In "Lights Out," Koppel paints a grim picture of a paralyzing power outage in the form of an all-out cyber-attack on the nation's electrical grid.

We Are Totally Unprepared For This!

Koppel says that for about three years a number of our top leaders, including the president have warned of those who are trying to get into our infrastructure, especially the power grid. He points out that the president twice mentioned the issue in successive State of the Union addresses, but did not dwell on the risk. The secretary of defense at the time, Leon Panetta, called the threat of a cyber-attack on the power grid potentially a cyber-Pearl Harbor. Koppel interpreting the statement as important also noted that nobody was paying any attention to it. This became the motivation for his book, as he wondered, A:) are these people just exaggerating for reasons I don’t quite understand, and, B:) if they’re not, what is the government doing to prepare for it and to prepare the public for it? His instinct told him that the answer was going to be "not much", and when he researched the matter it turned out to be closer to the truth than we might think and this is not an exaggeration.

The power grid is the system that connects North America's supply of electricity so that if one area has particularly heavy demand, power from another region can serve as back-up. The downside to all this is that because it is interconnected if a hacker manages to take down an entire grid, a huge portion of America along with parts of Canada could lose power.The electric grid operates as a series of networks that are defined by geography, failure in one place can cause failure in another place, which can cascade into a collapse of the system in a large area.On August 14, 2003, a power line in Ohio overheated, causing a widespread blackout that affected over 50 million people, it lasted up to four days in some areas. After talking to many people, including the last four heads of the Department of Homeland Security and Department of Defense Koppel got the sense that none of them knew what to do if such an event were to occur. More frightening might be that several of them know that the likelihood of it happening is great. When Koppel spoke to Janet Napolitano just after she left after five years on the job as secretary of homeland security he asked the question, what do you think the chances are of a cyber-attack on the power grid? She said very, very high, 80 to 90 percent.

Apparently, the conversation with Jeh Johnson, who currently runs Homeland Security and was trying to be more optimistic also failed to be very reassuring. Koppel said, "It didn’t go well, because, on the one hand, he conceded that the likelihood of a cyber-attack on the power grid is great. On the other hand, when I said, OK, what’s the plan? You’re the secretary of homeland security. He sort of dismissed it and said, well, as long as you have a radio with extra batteries." When Koppel pressed him it became clear that even while most people view formulating a plan for such an event as the responsibility of the government he found that they haven’t taken that responsibility very seriously, or at least have not come up with a solution yet. At issue is the fact we must deal with this the possibility of the power grid failing, but, and because we don’t know of any way to do so we have totally avoided the matter.

The Economy Would Grind To A Halt!

As to fears he will be dismissed as a doomsayer Koppel indicated he was more worried if people later found out what he had discovered and done nothing it would be a greater ill. Knowing there is not a plan, and that mass evacuations from places like Manhattan can't be done because we have a situation of too many people and no place to put them must give us pause. The author spends three chapters of the book dealing with the Mormons because after 200 years of being driven from pillar to post they are the one group that has learned how to survive in difficult situations.Noting that they are probably about as well-prepared as any large group in the country. The one thing the Mormons do that he would recommend to Americans would be they put away a three to six months supply of food and water. While he understands that there are tens of millions of people in this country who can barely afford to put food on the table every day he recommends that those who can afford it stock up.

Koppel takes the stand that if people do that and if the government has a backlog of freeze-dried food, which lasts up to 25 years, we can probably survive something like this, if not, there will be thousands of fatalities. Towards the end of the book, the well-respected veteran newsman quite provocatively lays out the case that in addition to all the wonderful things that it does the internet can be used as a weapon of mass destruction. Also, he makes it clear a major worry is it would not require a foreign government to cause such a scenario to unfold, nor would someone need a ton of money to do it. Someone sufficiently skilled in cyber-warfare, using an individual laptop, can inflict enormous damage. He was told by the man who was the former chief scientist for the National Security Agency, that he believes there are individual groups, possibly a group like ISIS that could buy the expertise, and that the equipment they need is available off the shelf. This makes his warning a very scary prospect.

Those of us that have suffered through a few days without electricity will testify that it changes everything. Because I'm responsible for a number of buildings and the comforts of the tenants that fill them I'm very aware of the many problems that quickly surface when electricity takes leave. Elevators stop, alarms fail, pump systems, refrigeration, hot water, heating, cooling, communication breakdowns, and more grind to a halt. People can't work when businesses are forced to close, and cars don't move without fuel, even city water supplies stop flowing. Trillions of dollars of paper wealth based on "faith" in the system would vanish in the blink of an eye. The ugly bottom line is that because everything is intertwined and dependent on electricity in some way or form few things would work. If this occurs we can only pray it comes during a season when mother nature has blessed us with reasonable weather that won't rush to test our limits. My experience has taught me few Americans today softened by city life have the training and knowledge that they can flush a toilet with a bucket of water, my point is that overall we are a helpless lot.

Few among us have researched the topic of grid failure to any degree, so I will defer to Mr. Koppel when he suggests that if and when the lights go off because of such an attack, that they will remain off for quite some time, and that power will be difficult to restore. I also cannot easily brush aside his worries and find myself troubled that nobody in the government has rushed to call his claims false. Koppel has no history of bantering about revelations that "the sky is falling" give credence that his concerns and warning should be given valid consideration. If such an event would occur in the cold of winter the death toll would be staggering, and I guarantee the government would be utterly paralyzed. I have done a fair amount of reading on this topic and suggest it might be wise or for others to do the same, and if they plan to do their search by a computer they might want to do so before the lights go out.

emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.Such recommendations are made in his recently published book- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf

Tuesday, November 17, 2015

Prepare yourself for a price war in the automotive sector. For a long time, I have had a problem with economist and others pointing to the auto industry as proof that the American economy is on
the mend. Years of rising auto sales driven by artificially low interest-rates have driven sales and leases. While we hear claims that the auto market is
hitting on all cylinders we also hear of far too many unemployed students buying new cars. Failure to focus on where the sales are coming from or originating is a mistake and so is not recognizing that the industry is creating its own problems in future years. Recently, we have heard about sales, not about soaring profits. Record levels of channel stuffing will often produce sales gains,
but no profits.

The facts behind what has pushed this market forward are very
disturbing. Over 31% of all new auto loans, this year were to subprime
borrowers. Subprime loans now account for 36.5% of all outstanding auto
loans. The easiest way to become a
subprime borrower is by defaulting on previous debt obligations. In a
shocking development, auto loan delinquencies have been surging, this means subprime loan delinquencies now
stand at 18%. Pretending to sell automobiles to
people either dependent on money from the government or no means to pay
for that automobile is not a good
business idea. When you have huge financial lenders and the rest of
the Wall Street banking consortium doling out 7 year 0% loans and
subprime loans as if it were candy it’s easy to move inventory. Sadly,
while this has temporary
boosted
the GDP the issuing of what is destined to become more bad debt always
comes back to haunt us in the
long run. A big problem is that such lending often increases the monthly
obligations of people who are already struggling financially.

The Federal Reserve has been pumping in trillions of dollars of liquidity into the economy and
much of it has resulted in pulling future consumption forward. These
policies will soon become a headwind to both future sales and growth. This is more proof of just what an infusion of
money from the Fed can produce and how it adds to the great distortion.Auto loan debt continues to ratchet higher every month and is at an
all-time high of $950 billion, up 33% since
2010 when the Fed, Wall Street, and the political class in Washington
decided they needed new debt bubbles in auto loans and
student loans to jump start our moribund economy. Recent figures showed
that there are 65 million auto loans outstanding, and the average debt
now stands at $17,352. Currently, over 30% of auto “sales” are actually
leases. The
rest are financed over an average of 65 months. This means that
virtually all new car
sales are nothing more than 3 to 7-year rentals. Issuing billions of debt to subprime borrowers for housing
proved to be a disaster and going forward we should expect the same
trend to reveal itself in autos.

This will result in a slowdown in American factories and have a dampening effect on growth. New-vehicle
sales in the U.S. were up 13% in 2012 and up another 7.6% in 2013, since then it has been up, up, and away.
The problem is that now more used cars are about to enter the market. Manheim Auto Auctions expects
2.1 million off-lease cars to hit the market this year and says that
could rise to 3 million or more by 2016. This is good news for used-car
shoppers but does not bode well for the automakers. When used car
prices are strong consumers are more inclined to consider and buy a new
car that cost only a little more. Because many people have chosen to lease cars in recent years we are now positioned that millions of used cars will soon be thrust onto the market as leases expire. This flood of used cars is expected to put massive pressure on the prices of used cars as well as reduce the need for many people to buy a new vehicle because of a secondary market that offered only limited choice and selection.

Going forward all this will dampen new car sales in several ways. Car shoppers can expect their trade-ins have less value meaning they will face both larger loans and bigger payments or forgo the purchase. This will carry over and make leasing more expensive because automakers base lease rates on predicted resale or "residual values," which is an
estimate of what the new car will be worth at the end of its lease. Another factor we should not underestimate is that many of the used cars entering the market will be attractive top of the line models with all the bells and whistles. These lower used-car prices are a delayed response to
the new-car market's revival from the recession: From a bottom at 10.4
million in 2009, new-car auto sales are on track to break 16 million
this year. John Rosevear who has been
writing about the auto business and investing for over 20 years, and for
The Motley Fool since 2007 has suggested that if you want a nice car you might want to wait a little longer.

The number of used cars coming off lease has already started rising, and if you go shopping for a
good clean used car that is two or three years old with around 30,000 miles on it the odds are that you'll be looking at a lot of
cars that just came off-lease. The bottom-line is the automobile market is about to get "down in the
dirt competitive" as more than ample supplies and other factors hit both dealers and manufacturers. Adding to the idea auto prices
will not be rising anytime soon is a decline in
metal prices from overcapacity in China, factors such as lower commodity
prices are beginning to work their way into overall production
cost. It is also logical to expect companies exporting cars into the
united States to push hard to offset flagging sales in their own countries
and take advantage of their weak currencies which play out to their
advantage.

Much like the airline industry
the auto sector has always had a history of being a "glamour" industry,
this means it tends to attract individuals who enjoy both risk and
attention. It also means it is full of stories marking past failures and
littered with names that no longer exist. A chief reason the automobile
industry took a beating during the 2008 downturn was because the world
was mired in overcapacity. When this occurs companies are forced to cut
prices and are faced with reduced profit margins. It is important to note
that as competition sharpens it will most likely result in the demise of many of the weakest players in coming years. Any slowdown auto
sales or the economy will only hasten this event, and put
the stock prices of auto companies under a lot of pressure, do not be surprised if the
issue of bailouts or downsizing again becomes necessary. Most at risk are the smaller
players that will have difficulty raising capital in this industry that
constantly demands a company invest huge sums of money to stay
competitive.

Sunday, November 15, 2015

While military leaders drool at the thought of possessing and controlling armies of high-tech killing machines not everyone is so enthusiastic about such weapons and the thought of adding artificial intelligence to their repertoire is even more frightening. Recently an open letter was presented to the International Joint Conference in Buenos Aries that was signed by leaders in the field of AI, such as Stephen Hawking and Elon Musk, it made the case that governments should not go down the path of an arms race in AI by developing systems with offensive capabilities that can operate without human intervention. In Britain, a May 27, 2015, article in the Telegraph reported an academic has warned that killer robots which being developed by the U.S. military will leave humans utterly defenseless. Make no mistake progress is being made by several countries to move in the direction of producing a slew of these weapons that can perform many different functions. About 28 minutes into the Democratic debate on November 14th Hillary Clinton talked about recently revealed Russian plans for a drone submarine with nuclear tactical capability. While I have written on the subject before an occasional "Killer Robot Update" has merit. This subject should not be limited to drones, killer robots, and a slew of other ugly possibilities.Blame it on an imagination gone wild or a distrust of those with too much power. Unfortunately, more recent revelations about the American government spying on us, our friends, and the leaders of our allies across the world does little to calm my concerns. We must take note that technology is quickly blurring the line between drones and robots at the same time that the killing power of these machines is being ramped up, we should be afraid! To say these machines have the potential to become formidable and a danger in the wrong hands is an understatement.

Let it be clear, killer robot-drones are no longer the stuff of science fiction and the technology to make such weapons exist today. The U.S. Navy’s X-47B, a Northrop Grumman-developed drone, has already accomplished the task of taking off and landing on an aircraft carrier entirely on its own, it is only a short step to add missiles to its weapons bay. The unmanned plane is capable of supersonic twists and turns with a G-force that no human being could manage, and could take autonomous armed combat to a whole new level. In South Korea, several years ago a Samsung subsidiary designed a stationary robot sentry that sits along the demilitarized zone and can identify and fire at a target on its own. It’s linked up with a human operator for now. The website --- http://www.wired.com/dangerroom/2013/10/weaponized-military-robots/ ---goes even further when describing the advancements of these killer robots with automatic rifles and states they could be on the battlefield in the next 5 years. An October 18th article by Allen McDuffee says Robots armed with automatic weapons, anti-tank missiles, and even grenade launchers are marching, er, rolling ever closer to the battlefield now that they’ve shown they can actually hit what they’re supposed to.

Killer Robots Like Swords Stand Ready To Kill

SWORDS, a previous generation of
weaponized robots had its combat
duties curtailed when it moved
without being given a command.
(Photo: QinetiQ)

Many people feel giving a non-human technology the ability to decide if a human lives or dies is simply morally reprehensible and puts these weapons on the same level as chemical and nuclear weapons. There are just too many issues and variables that make this unacceptable. What if a killer robot malfunctions and begins firing at random? What if it’s hacked? What will happen once an enterprising nation kicks off the "inevitable" AI arms race, experts ask? Once these weapons find their way to the battlefield, the letter continues, it would then be only a matter of time before they hit the black market, at which point they would wind up in the hands of terrorists and all sorts of other unsavory individuals including dictators and tribal warlords. How quickly will the technology proliferate, to rival states and to non-state actors like extremist militants? And who exactly is held legally accountable when a killer robot attacks? So far some 272 computer science experts from 37 countries have signed on to support a ban on development of autonomous robot weapons technology.

Loud is the outcry over U.S. armed drones killing civilians and how the U.S. has expanded their use is causing worldwide outrage. Reports from the United Nations, Human Rights Watch, and Amnesty International, and the lack of transparency on the use of drones from Washington recently resulted in a debate at the UN. A movement has emerged to get ahead of another potential problem by establishing an international ban on fully autonomous lethal weapons dubbed “killer robots,” it’s a technology that can kill targets (humans) without any human input. Whereas drones today have someone somewhere remotely determining where and when to fire, a fully autonomous air, land, or sea weapon could make the decisions on its own. Until a binding agreement is formed, expect concern to continue growing over the potential of robots to undermine human responsibility in decisions to use force thus obscuring accountability for the death and destruction they will cause.

The Guardian says a "The Stop the Killer Robots" coalition that includes many of the groups that successfully campaigned to have international action taken against cluster bombs and landmines is working to get a similar global treaty against autonomous weapons. Still, the U.S. military is slow to rule out the development of technology in this area. The Department of Defense has issued an ambiguous directive on autonomous weapons that restricts but does not rule out their use in the field for the time being. This appears to be America's only government policy on the technology, and, unsurprisingly, few countries have formal policies on the issue. Of course, advocates say the weapon could, in fact, become a crucial tool for saving lives. “While a preemptive ban may seem like the safest path, it is unnecessary and dangerous,” wrote law professors Matthew Waxman and Kenneth Anderson, both members of the Hoover Institution Task Force on National Security and Law. They continued, "It is quite possible that autonomous machine decision-making may, at least in some contexts, reduce risks to civilians by making targeting decisions more precise and firing decisions more controlled."

May I suggest the possibility this subject has been largely kept off the radar of the American people by those wanting our government to go "all in" on this technological arms race. People under the impression we can come out on top are often driven by the fear it is only a matter of time before it happens anyway. Please note, a preemptive weapons ban is not unprecedented. In 1995, parties to the UN’s Convention on Conventional Weapons added a protocol banning blinding lasers. Leading up to that ban, the U.S. was against it but after considering the potential for mass proliferation the U.S. changed its stance and helped generate support for the measure. Ultimately, this is a call to action and suggests a ban on "offensive autonomous weapons." Those pushing such an agenda cite similar international agreements on chemical and biological weapons, space nukes, and lasers that blind people. For now, the U.S. says it doesn’t support an international ban on this technology but pressure is being applied by groups like the UN.

Four robotics companies HDT Robotics, iRobot, Northrop Grumman and QinetiQ have already run their machine gun-armed robots through a live-fire demo at Fort Benning in what has been dubbed the "Robotic Rodeo". This was to give the brass a chance to see just how viable such systems are. The Army, which issued a favorable assessment of the technology doesn’t see our armed robotic overlords as weapons taking the place of boots on the ground, but rather as combatants working alongside troops in the field. “They’re not just tools, but members of the squad. That’s the goal,” Lt. Col. Willie Smith, chief of Unmanned Ground Vehicles at Fort Benning said. Senior Army officers attending the rodeo appeared satisfied with the robots after seeing them accurately hit targets 500 feet away, and they hope to see battle ‘bots in action within five years. “We were hoping to see how they remotely control lethal weapons,” said Smith. “We were pleased with what we saw here. The technology is getting to be where it needs to be.”

It should be noted this isn’t the first time the Pentagon has played with weaponized robots, but earlier experiments proved such machines weren’t ready for prime-time after some of them moved without commands. Northrop Grumman’s CaMEL (Carry-all Mechanized Equipment Landrover) was among the armed robots on display, it can be fitted with automatic weapons, anti-tank missiles, and grenade launchers. It can run for more than 20 hours on 3.5 gallons of fuel and carry a load of 1,000 pounds. It also can produce power to charge batteries or power other systems and a hybrid engine allows the armed robot to operate very quietly on the battlefield and travel farther to provide firepower where it’s needed. “CaMEL is a multi-function platform that can quickly transform from supporting troops to protecting troops as an armed wing-man, increasing the firepower of dismounted platoon and company maneuver units,” said Phil Coker of Northrop Grumman in a statement.

It appears Isaac Asimov's 3 Laws of Robotics may have been tossed into the trash bin in mans rush to build a better killing machine. All science-fiction readers will remember these were the laws that were to be built into all machines that would keep them from ever harming a human being. It is possible that Asimov's 3 Laws of Robotics have been overridden by Forest Gump's Law of "Stupid Is As Stupid Does!" A half-crazed lunatic might even praise a killer robot for its performance and not hesitating when ordered to kill and slaughter unarmed women and children. No need to worry about PTS or all the costly issues and problems human soldiers present, with killer robots it all becomes about killing!

Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other posts that may be of interest to you. Three other articles about robots can be found below,
http://brucewilds.blogspot.com/2013/09/thats-my-robot.html
http://brucewilds.blogspot.com/2013/04/robot-factories-mean-less-jobs.html

The economy of the 19-member union grew 0.3 percent in the third
quarter, slowing from 0.4 percent in the prior quarter is the report from Eurostat, the trade bloc’s statistics office. “So
far the message coming to most of the citizens of Europe from monetary
union is that it’s about banks and fiscal tightening, not about growth
and jobs,” Mr Padoan said in an interview in his office. “This proposal
is part of trying to convince Europeans that Europe is part of the
solution, not the problem.” Again the reality is that a pan-European jobless scheme would struggle to gain traction
because several Euro-zone members will be wary of funding a policy that
requires the bloc’s healthier labor markets to support its weaker ones. Just last month, supporters of deeper financial integration hit a
roadblock from Germany in their efforts to secure agreement on a common scheme to
protect bank deposits.

Leaders Address Crisis With Vows Not Plans

Meanwhile according
to a report from the ECB lending to the private sector slowed in September, suggesting the bank’s
stimulus measures have yet to spark a significant turnaround in the
region’s economy. According to the ECB report, lending to
households was 1% higher than one year ago, a slight acceleration from
August, but this occurred as lending to businesses slowed to 0.1% last month from
0.4% in August. The fact remains the Euro-zone economy is going nowhere despite all the over the top efforts by the European Central Bank to stimulate the economy. As usual difficult structural reform is lacking and the only real effort being made by politicians is to give the impression that leaders are hard at work trying to arrive at how to correct the problem. It has become the chief pastime of those in power to meet and talk, then meet and talk some more, but action is seldom seen.

Adding to the Euro-zone's woes of economic stagnation is contagion flowing from slowing economies across the world, a October 20th article in the Guardian is an example of what they face. The piece delves into how about half of the 1.6bn tonnes of steel made globally comes from
China and why firms operating in the UK simply can’t compete. Guardian
contributor Karl West, wrote; The latest grim chapter in the long, slow death of Britain’s steel industry may have been decided in India, but it was scripted in Beijing. He then continues saying, Tata Steel, owned by the Indian conglomerate Tata
Group, just announced it has been forced to cut 1200 jobs in Britain.because it has been hammered by a toxic cocktail of high green taxes on
emissions, a strong pound, slowing demand coupled with cheap Chinese competition and over capacity.

The Euro-zone Has Failed To Take Action In This Crisis

Stories like those above are all over the place and this is even before we get to the issues growing from a massive flow of refuges into the Euro-zone. While the boost in population would cause a person to envision eventual economic growth from increased demand for goods and services, near term concern is over the cost of assimilating more than a million people into society. It should be noted these people arrive with nothing and often do not even speak the language. This has created conflict between not only countries already beleaguered by slow growth, high unemployment, and deficit budgets and their better off neighbors, but groups within many of its members.

Gypsies in Italy have been considered by many Italians to be a problem for years and in several other countries unemployment coupled with worry over terrorist threats have raised concerns. This means it may be difficult for some countries to get enthusiastic about the refugees and migrants flooding the area. It has become common place to see pictures of poorly dressed refugees huddled in the rain and cold at the borders of countries denying them entry, this usually is complete with wire fences and armed guards. As usual the meetings of leaders in Brussels and other cities yield little other than more meetings and photo opportunities. The pledges to address the crisis as a common force produces little accept the promise of money and action to come, but nothing seems to get done. Mix in a few gems of unrest, such as the independence movement by Catalonia gaining strength in Spain, andit is easy to understand how fragile the Euro-zone really is.The frustration at just how inept and dysfunctional governments can be is not a unifying force that would make the people of Europe pass more power to those in charge.

Footnote; Currently the thought of taking a holiday in Europe seems daunting. Attempting to travel through the area when facing closed borders, strikes, and homeless refugees has offset the excitement of tourist enjoying the weaker euro.
As always articles on many subjects may be
found in my blog archive, thanks for reading, your comments are
encouraged.

Tuesday, November 10, 2015

Today much of the new residential single unit freestanding construction in America is of the cookie-cutter urban sprawl variety. A great deal of this is driven by what is in the interest of big developers and not the buyer or society. This is driven by developers seeking a clear canvas and cheap land on which to build. Builders garner savings from mass production factory-like building methods with sites that are in close proximity which reduces travel time for workers. Huge developers also love to transfer the cost of upgrading the infrastructure to access these new communities to local government. Builders will tell you that buyers want covered patios for outdoor living, less-formal dining rooms, lots of space for entertaining because they want and continue to build units with 1,800 to 4,800 square feet, a size identical to 10 years ago.

Do not underestimate how much residential construction skews the direction of growth in our country and society as businesses rush to locate near these new opportunities. This tends to gut and leave as wastelands large areas developed only decades ago. We should note all this "suburban sprawl" comes with a fair amount of ecological impact as ecosystems are paved over with concrete. Our modern lifestyle carries with it pollution of water sources, enormous amounts of garbage filling massive landfills, tons of carbon being spewed into a warming atmosphere, and several more damaging side-effects. It is a lifestyle choice that has been made for us and not necessarily by us. This is guided by the fact that bigger homes are generally cheaper to build per square foot than smaller ones, developers can make a wall a few feet longer, and give buyers more square feet without adding a lot to construction cost.

Recently, I was reminded that many of the systems we take for granted are historical accidents, meaning they are based on legacy systems hundreds of years old or assembled in a short-term, ad hoc fashion to benefit a certain party, this means they may not be logical or the best choice available. In the case of housing, it often is the builder rather than the end user that benefits from the way communities are designed and constructed. Many of the homes being built in cities across the country look very similar to the ones built during the boom. Some, in fact, are even bigger. The average single-family home built in 2013 was 2,598 square feet, 80 feet larger than the average single-family house built in 2008, and 843 feet larger than homes built in 1978. And because it is easier for the builder to construct we find people are willing to accept such designs, many of the new homes going up are two-story with garages that fit two cars and look pretty similar to the house next door.

This article is an attempt to point out what we want or should be buying is not always what we are offered, told we need, or directed towards. For example, it is logical when given a choice many people would choose not to spend their day in a car rushing to and fro, but rather spend the time smelling the roses. This brings us back to thinking about want we truly want and really adds value to our lives. Some people scream this planet is in its death throes while we keep on fiddling away. It is the belief of some planners that small dense towns or villages of under 50,000 people are the only viable, sustainable model for the future. These towns would produce most of their food and goods based on sustainable agriculture raising multiple crops in the same space, and small-scale industry, they would reduce, reuse, and recycle constantly, and they would promote a simpler, slower and less materialistic and consumer-based lifestyle.

A close inspection shows little is different in the change-resistant home-building industry since the 2008 recession and the housing bust. Even surveys that suggest that both boomers and younger generations are interested in living in more urban places where they don’t have to spend so much time in the car getting to and from work, builders continue to bang up cookie-cutter communities out in the suburbs. Truth is this market is driven by building a fast, cheap product that looks good and will past inspection. Pride in workmanship and quality take a backdoor to issues like liability and the unit holding together until warranties given by the builder have expired. Some planners and “smart growth” advocates argue that builders should end the practice of buying empty land further and further out and building on it, and turn their efforts towards building more compact, walkable communities near public transit. It is not surprising that builders rile at the cost rehabbing existing land to fit new projects would add to their projects.

In truth rehabbing existing developments is important for the environment, planers say this would save valuable resources and money in the long run, but builders are not interested in the long run. Sadly this trend is hard to change. Even the Republican Party adopted a platform at its 2012 Convention to inform and pledged to “expose” both state and local governments around the country to the “underlying harmful implications of implementation of United Nations Agenda 21 destructive strategies for ‘sustainable development’.” Seeing sustainable development as dangerous seems odd, but it points to a growing divide about how different people think Americans should and want to live in the future. Should we continue to live in spread-out, single-family homes with lawns and garages and spare bedrooms? Or do we accept the idea of smaller, compact houses where we can easily hop on a train or walk to the nearby restaurants and don't even need a garage or a car to park in it?

Part of the goal of this article is to call attention to the idea housing generally puts "pretty over practical" and what best suits the developer drives what is being built. Those wishing to maintain the status quo are quick to point out that builders efforts to introduce sustainable developments have not always been successful or quickly embraced. Any walk-able, mixed-use community, adhering to many of the principles of new urbanism that do not sell well are tagged as proof nobody wants such a product. Builders constructing such compact homes with garages in the back and a big, public park in the middle, with a swimming pool and dog park, so residents can walk and interact with each other often include plans to build coffee shops and other retail within the community. We should remember however that since these planned communities are not being allowed to grow organically they often fail to achieve that "certain something" that makes them pop.

This debate is ongoing and will not end anytime soon, it is all part of the "social engineering" issue mankind will face in the future. This involves modifying a lot of the zoning and building layouts from the old era and it isn't going to be easy. To achieve real change we face several major challenges and when it comes to implementing a real shift in both housing and how we live our lives it will require a critical mass change in public opinion and market direction. While studies may show that the younger generation wants small, compact, transit-accessible housing, builders claim to know better and say "once they decide to have kids and dogs, they’ll want the traditional suburban home with more space." Some people may say they want to live downtown forever, but when reality and life take over they have a kid or two, or hookup, and they suddenly become "those people" and want to have a house in the suburbs.

In the past areas like California have often lead the rest of the country when it comes to adopting environmentally-friendly policies that are sustainable for the long term. We should not be surprised if other areas are slow to adopt what they call "smart growth" and just as America is divided politically, it may become a more divided country in the way its residents live. People in cities such as Washington D.C., Boston, and Seattle may embrace more walkable developments, while consumers in other areas where land is cheap may continue to live in sprawling suburbs. It will be interesting to see how this largely unplanned development unfolds going forward, and how much it is affected by changing values of consumers rather than what is easiest for large builders. In such a growth scenario where change really occurs, there is a place for small companies focused on remodeling and building homes in already developed areas.

About Me

Bruce Wilds is a contractor that owns real estate in the Midwest, his holdings include apartments and office complexes. He is anchored to reality and the economy as he maintains, designs, and leases buildings. This has made him keenly aware of rapidly changing lifestyles, this blog incorporates many of the experiences and knowledge from his hands-on business style, extensive travels, and studies of history, politics and economics.